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Monday, 20 June 2011

Classify the various Forms of Business Combinations and explain its objectives or Advantages


Forms of Business Combination :-
Following are the important forms of combination :

1. TRADE ASSOCIATION :-
It is a voluntary association of industrialists traders and merchants who belong to the same nature of business. The trade association main objective is to protect the economic interests of the members. It also encourages the friendly relations among the members. Every trade association elects its office bearers to look after the interest of the members. This association also provides necessary information's to the rubbers about the business. Wood merchants, iron merchants and leather trading association are the examples of Trade Association. Trade associations also establishes its common fund. Each member contributes the fund. This fund is used to obtain the common objectives.


2. CHAMBER OF COMMERCE :-
It is an association of industrialists traders and businessman who belongs to the particular city or district. Its management is conducted by the elected office bearers. Govt. has also right to appoint some members while preparing the commercial and fiscal policy government considers the recommendations of the chambers of commerce.

Advantages of Chamber of Commerce :-
1. It promotes the trade and commerce activities.
2. It protects the interest of the members.
3. It collects and provides the information's regarding trade and industry to the members.
4. It settles the disputes among the members.


3. POOL :-
Pool is an agreement which is made by the members. Members of the pool produce similar product and they want to regularize the price of the product. The management of the pool controls the price and product of the pool members. All the member firms transfer their sources of rights to the pool. The pool eliminates the completion. It divides the market and distributes profit among the members. Under this system firms do not loose their identity. Pool has three kinds :

1. Production pool or out put pool :- When quota of production is fixed for each of the member firm in order to avoid over production it is called production pool.

2. Market pool :- According to this method market is divided among the member firms. Each firm sells its product only in the allocated area. The pooling of market may be local national or international.

3. Income or profit pool :- The member of the pool fix the base price which is equal the cost of production. The members of the pool are allowed to sell the product at higher price fixed by the central body of the pool. The difference between selling price and cost is transferred to the account of the Central body of the pool. The pool divides the profit according to their agreed share.

Advantages of Pool :-
1. It can be easily formed.
2. There is no fear of over production.
3. It reduces competition.
4. It saves the expenditures of the firms.
5. It increases the profit of the firms.
6. It controls the prices of the product.

Disadvantages of the Pool :-
1. The efficient firms can not produce the goods according to their capacity.
2. Pool works for a limited period.
3. Pool members often disregard the pool agreement.
4. Customers generally dislike the pool.


4. CARTEL or SYNDICATE :-
It is formed by a number of producers engaged in the same industry. They make an agreement to sell their product jointly through the joint stock company called cartel. The Cartel is responsible to dispose of the product of the firms in the market. The Cartel secures monopoly and sells the product at different prices in different countries. The Cartel sells the product on the behalf of the firms and distributes the profit according to their supply. The Cartel only performs the duty of distribution of product it does not operate for earning of profit for itself.

Note :- Cartel is an association of independent producers. Cartel can not interfere in the internal affairs of the firms.

Advantages of Cartel :-
1. The members can earn monopoly profit.
2. The inefficient firm may save itself from competition.
3. The bargaining power of the Cartel is better as compared to others.
4. Selling of the product is economical.
5. The member do not lose their identity.
6. It is more stable than pool.
7. Publicity expenditure of the firms is saved.

Disadvantages of Cartel :-
1. Member of the firms can not maintain uniform standard of the goods.
2. The customers are charged higher prices.
3. Wealth goes in few hands.
4. Non members of the Cartel Compete with the Cartel.
5. New firms also enter into the market due ti high rate of profit.


5. TRUST :-
Trust is a that kind of business organization in which the stock holders transfer their stock or shares to the Board of Trustees and receive the trust certificates in exchange. The agreement which takes place is called trust agreement.

Essential or Conditions for Trust :-
1. Two or more than two companies can form trust.
2. Board of Trustees is formed.
3. All the members transfer their stock to the Board of Trustees.
4. Board issues the certificates against the stock.
5. The members of the companies do not lose their identity.
6. Member companies receive profit according the certificates obtained.
7. The over all policies are framed by the Board of Trustees.

Advantages of Trust :-
1. Trust is in a better position to control the out put and market.
2. Trust financial conditions is strong.
3. Trust uses the latest machinery and reduces the cost.
4. Trust has effective control on the member firms.
5. Trust avails the economies of large scale.
6. There is no danger of over production.
7. Trust produces the goods of standard quality.

Disadvantages of Trust :-
1. The process of trust formation is very difficult.
2. The consumer suffers a loss due to Trust monopoly.
3. There is also a danger of over investment in the trust.
4. Wealth goes in few hands.
5. The government of various countries declared it illegal because it is harmful for the public.

Rings :- It is organized to secure the monetary gains. Producers combine themselves to restrict out put and earn maximum profit. All the members production quota is fixed and no one can produce more than his quota. It is organized to exploit the consumers. Any member if violates the agreement he is fined by the ring. Supply of the firm is controlled by the ring.

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